New Senate tax plan removes stock option provision that had Silicon Valley sweating

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President Donald Trump (2nd L) welcomes members of his American Technology Council, including (L-R) Apple CEO Tim Cook, Microsoft CEO Satya Nadella and Amazon CEO Jeff Bezos in the State Dining Room of the White House June 19, 2017 in Washington, DC.

A revised tax plan released Tuesday by the Senate drops a provision that would have taxed company stock options when they vest, letting Silicon Valley breath a sigh of relief.

The measure would have potentially made it harder for some companies in the Valley to compete, according to executives in the industry. They typically compensate employees with the promise of being able to cash out on the company’s stock in the future.

Had the Senate previous tax bill become law, it would have been “the end of equity compensation in startups as we know it,” according to Fred Wilson, managing partner at venture capital firm Union Square Ventures, who wrote in a blog post Monday.

Currently, company stock options are taxed when employees exercise them. The Senate’s plan would have taxed those shares before they realized their potential gain. As a result, employees may owe taxes on something they only have the rights to and don’t actually own.

—CNBC’s Evelyn Cheng contributed to this report.